Wall Street Journal

Ill Winds of '05 Blew Some Good To Mobile, Ala.

By THADDEUS HERRICK
August 23, 2006; Page B1

MOBILE, Ala. -- For years, this historic port city was something of an afterthought, overshadowed by other Gulf Coast hot spots stretching all the way to New Orleans.

But Mobile's fortunes were changed a year ago when Hurricane Katrina hit, destroying much of the coast but striking the metropolitan area of nearly 600,000 here with little more than a glancing blow.

The sudden twist of fate leaves Mobile poised to play a far bigger role on the Gulf Coast. The storm added considerable strength to Mobile's already reviving economy, as evacuees snapped up apartments and houses and disaster officials set up shop. Mobile's retail-sales-tax revenue rose more than 20% in the 12 months ended in July 2006 compared with the year-ago period. "It's one of the best periods of economic development in many, many years," says Mayor Sam Jones.

Battle House Tower, to open in Mobile in 2007.

Several cities hit by Katrina are also reporting surges in sales-tax revenue, as locals snap up cars and construction material. But Mobile has also become a bedroom community for cities such as nearby Pascagoula, Miss., which last week repealed a residency requirement for municipal employees. "Ninety-five percent of our city was underwater," says Kay Kell, the city manager.

Mobile's resurgence highlights how Katrina, while taking a considerable human toll, also reshuffled the regional economy. Cities like Houston and Baton Rouge, La., have seen their economies flourish since the storm. Other cities, like Gulfport, Miss., and New Orleans were hobbled and remain so.

Few in New Orleans see Mobile as a long-term threat because of the Louisiana city's considerable population, huge port and its sizable oil-and-gas operations. "There are certain companies that need to be here," says Peter Ricchiuti, assistant dean at Tulane University's Freeman School of Business.

Still, the storm has helped position the Alabama city, with its own French roots and Mardi Gras, as an increasingly credible alternative. In June, International Shipholding Corp. announced it would move its 135-person headquarters to Mobile from New Orleans because of uncertainty about the future of the Mississippi River-Gulf Outlet. The company is relocating to the 35-story Battle House Tower, a project funded by the Retirement Systems of Alabama that is set to open in downtown Mobile next year. It will eclipse One Shell Square in New Orleans as the tallest office building on the Gulf Coast, outside of Houston. (Though One Shell Square has 51 stories compared with Battle House Tower's 35, the Mobile building -- topped by a spire -- is taller by 48 feet.)

Since 2004, Mobile has been home to Carnival Cruise Lines' Holiday cruise ship, which has renewed interest in Mobile's 300-year-old downtown. The Retirement Systems of Alabama, the pension fund for Alabama teachers and state employees, is also restoring the grand Battle House Hotel and renovating the 28-story Riverview Plaza Hotel, while clubs are opening up along Dauphin Street and lofts around historic Bienville Square. "Everybody is waking up," says Elizabeth Sanders, executive director of the Downtown Mobile Alliance.

Situated on Mobile Bay some 30 miles from the Gulf of Mexico, Mobile has rebuilt its economic base largely around aerospace, shipbuilding and shipping. Its new container port, a $350 million joint venture between APM Terminals North America -- a unit of APM Terminals InternationalBV -- and Alabama's State Port Authority, is scheduled to open this fall and will expand container-shipping capacity tenfold, officials say.

Under construction, Battle House Tower (far right) already dominates Mobile's skyline. It will be the Gulf Coast's tallest office building, excluding Houston.

Mobile has also attracted Austal USA, a division of the Australian company Austal Ltd. that builds aluminum-hull ships, and the city has transformed the former Brookley Air Force Base into an industrial park. Northrop Grumman Corp. has chosen the site should it win a $200 billion contract -- or a portion of it -- to be awarded next year to build a military refueling aircraft.

The boom represents a remarkable turnaround for Mobile, which suffered a series of economic setbacks between the 1960s and 1990s, including the closure of the air base and the loss of some 16,000 jobs. Through the 1980s, the central business district was a veritable ghost town. "It was a terrible, desolate time," says Ms. Sanders.

In the 1990s, the city watched casinos along the Mississippi coast further erode its economy. While gambling is illegal in Alabama (outside Indian reservations), residents of Mobile flocked to cities such as Biloxi, Miss., some 60 miles away. One study estimated that nearly half of Mobile County's residents more than 21 years old visited Mississippi's casinos an average of nearly five times in 1993 -- spending a total of $40 million.

Today Biloxi's casinos are rebuilding bigger than ever, but much of Biloxi and the Mississippi Gulf Coast are in ruins.

Mobile itself suffered some of the worst flooding in 100 years, as a storm surge of 12 feet pushed across the bay and into its downtown. But the city's relatively protected location away from the Gulf and some 40 feet above sea level spared it from the worst.

The population of Mobile County surged by about 10,000 in the three months following Katrina, according to Semoon Chang, a professor of economics at the University of South Alabama; the county, meanwhile, gained some 4,700 new jobs.

Within weeks, Mobile retailers were swamped, just as they had been in 2004 when Hurricane Ivan hit Pensacola, Fla. Tim Nolen, general manager for Mobile's Colonial Mall Bel Air, says September 2005 sales jumped 50% from the previous year, with most of the business coming in the last two weeks of the month. "It felt like a second Christmas," he says.

Hotels filled, then apartments. Housing followed, with sales for October 2005 rising more than 30% above the year-ago period, according to the Center for Economic and Business Research at the University of Alabama. Businesses such as insurance companies sought housing for their adjustors, while others snapped up houses to rent or sell. Melissa Morrissette, a broker with real-estate firm LLB&B Inc. in Mobile, says, "Anything selling for under $350,000 would get up to six offers in a day."

Though still vigorous, Mobile's housing market has begun to slow, and more than half of the 10,000 people who flocked to the county following the storm have moved on. Mobile officials say they knew from the outset that some of the population explosion was temporary. County Commissioner Stephen Nodine says, "For a while, we were the only ones with the electricity on."

The University of South Alabama's Dr. Chang says that while Mobile's sales-tax gains aren't expected to match those of last fall, they are likely to stay well above prestorm levels in the months ahead. He says Mobile's expanding economic base and a continuing windfall from Katrina will sustain the boom. For instance, DRC Inc., of Mobile, is completing the terms of a $33 million contract to haul about 100,000 abandoned vehicles from Louisiana.

Write to Thaddeus Herrick at thaddeus.herrick@wsj.com